Panel may suggest floor rate with band for GST

Article 279B provides for establishment of the Dispute Settlement Authority to adjudicate dispute or complaint referred to it by a state or Centre

Parliamentary Standing Committee on Finance is likely to suggest a floor rate with a narrow band for the Goods & Services Tax (GST) when it submits its recommendations on the Constitution (One Hundred and Fifteenth Amendment) Bill that will pave way for introduction of the much-awaited indirect tax reform.

It may also suggest that the decisions in GST Council, comprising the Union Finance Minister and state finance ministers, should be taken through voting and not by consensus as originally proposed in the Bill. It is likely to propose one-third weightage to the Centre and two-third to the states, while a decision would be taken by three-fourth majority. It may also suggest that the quorum for holding meetings of the GST Council should be raised to half from one-third.

“Consensus means 100% agreement. It may not be possible to reach complete consensus as some states will always have issues on certain areas,” said a person privy to the draft report.

It may recommend that Sections proposing a Dispute Settlement Authority (DSA) to decide disputes arising among states and take action against the states should be removed from the Bill, tabled in Parliament in March 2011, and that the GST Council itself should evolve a mechanism to resolve the disputes.

Article 279B provides for establishment of the Dispute Settlement Authority to adjudicate dispute or complaint referred to it by a state or the Centre arising out of a deviation from recommendations of the GST Council that results in a loss of revenue or affects the harmonised structure of GST.

Another important recommendation of the committee is likely to be on subsuming entry tax in GST. The Centre may allow states to add to the revenue neutral rate a small margin to offset revenue losses from subsuming entry taxes in GST. The states can pass on the tax to local bodies.

The panel may suggest giving powers to the states to raise additional resources in the time of a natural calamity and a special scheme for North Eastern states and Jammu & Kashmir.

The report of the panel, headed by BJP leader Yashwant Sinha, is likely to be adopted on Friday. After examining the report and incorporating the views of the Committee wherever feasible, the Centre would approach the Cabinet to present the Bill in Parliament with the changes.

However, the rollout of GST would still not be possible during the current government’s regime as firstly the Constitution Amendment Bill would have to be passed by a two-third majority in Parliament. Then it will have to be ratified by legislatures of at least half the states. The next step will be to table the GST Bill in Parliament, while states will introduce the Bill in their respective Assemblies.   

A broad consensus was reached between the Centre and the states on many of the areas examined by the Standing Committee in the meeting of the Empowered Committee of State Finance Ministers in Bhubaneswar in January.

Earlier the Centre wanted a uniform rate for GST, but later it agreed to have a floor rate with a narrow band on insistence of the states However, differences still remain on many issues such as the revenue neutral rate, threshold and dual control, among others, but these can be addressed by GST Council.  

GST will replace a number of indirect taxes presently being levied by the Centre and the state governments and is intended to remove cascading of taxes.